Lifetime Allowance (LTA)
Previously, this was the limit on the total value of pension savings you could build up through your lifetime without triggering an extra tax charge of 55% (known as the lifetime allowance charge). The Lifetime Allowance is currently £1,073,100 for most people.
However, in the March 2023 Budget Statement, the government announced that, from 6 April 2023, anyone breaching the current Lifetime Allowance when starting to take money from their pension will no longer face a lifetime allowance charge. However, there will still be income tax to pay at your marginal rate. The government also intends to remove the Lifetime Allowance completely in future.
The maximum tax-free lump sum is usually up to 25% of your total BTPS benefits. This is provided, in general terms, that it’s not more than 25% of the standard Lifetime Allowance you have available at the date your pension is paid. In addition, the government has frozen the amount of maximum tax-free lump sum that can be paid from all of your pensions combined, to 25% of the current Lifetime Allowance, which means a maximum of £268,275.
If you have taken any other pension benefits prior to 6 April 2023, you will have used up a portion of your Lifetime Allowance. Until the government removes the Lifetime Allowance completely, your Pension Quote will still show an estimate of how much of your Lifetime Allowance each of your pension options uses up and if you are a BTPS pensioner, your online P60 will show you the percentage Lifetime Allowance used.
You can find out more on the Lifetime Allowance at moneyhelper.org.uk.